Rough ride: Nissan slashes outlook, unveils Ghosn-related charge
Carmaker will attempt to repair partnership with Renault that has been strained since scandal broke
Yokohama — Nissan Motor has warned its profit will plumb six-year lows on waning global sales, underlining the challenges it faces as it grapples with the fallout from the fall of former chairman Carlos Ghosn.
The Japanese carmaker, in its first results since Ghosn's arrest in November, unveiled an $84m charge linked to deferred compensation for the executive, who has been indicted for under-reporting his salary at Nissan from 2010 to 2018.
The scandal has roiled global car markets and created tension between Nissan and its partner, France’s Renault, raising concern about the future of the groups that Ghosn wanted to merge.
The dour outlook indicates an urgent need for Nissan and Renault to strengthen their partnership, but ties have been strained since the Japanese group first moved to remove Ghosn as chairman after his shock November 19 arrest in Tokyo.
Nissan wanted to stabilise alliance operations, said CEO Hiroto Saikawa, who is due to meet newly appointed Renault chairman Jean-Dominique Senard this week in Japan, as they look at ways to cement their partnership.
The Nissan CEO said he wanted both groups to leverage their scale betrer to be more competitive and efficient in areas such as manufacturing and procurement, while respecting each others’ autonomy.
“In the past few years, there’s been a lot of talk about ‘convergence’ of the two companies’ operations,” Saikawa said, referring to one of Ghosn’s key aims. “While stabilising our operations, we need to re-examine whether investments (towards convergence) are the most efficient.”
This could mean a reassessment of the alliance’s growth targets through 2022, Saikawa said on Tuesday.
Nissan sales are almost 60% bigger than Renault's, but it remains junior in its shareholding structure. Renault holds 43.4% of Nissan, but Nissan has only a 15% nonvoting stake in Renault.
Japan’s second-biggest carmaker projected an operating profit of ¥450bn ($4bn) for the year to March, down 22% from the previous year and 17% below an earlier forecast, hit by a slowdown in global sales. This would be Nissan’s lowest operating profit since 2013.
Sales to skid
Nissan cut its annual global retail vehicle sales view 5.5% and projected weaker sales in the US and China, its biggest market.
Saikawa said Nissan would avoid trying to meet sales targets by using discounts, a strategy that has hurt its profitability in North America, the world’s No 2 car market.
“We were only able to meet 60%-70% of our (global) target for the year to the third quarter,” Saikawa said. “If we are not careful about how we make up for that shortfall in the fourth quarter, we could find ourselves in similar situations we’ve seen in the past. So we want to raise our performance by improving the quality of sales.”
Nissan expected to sell 5.6-million vehicles worldwide in the year to March versus a previous target of 5.93-million.
While it still expects sales to grow in China, the world’s top car market, it trimmed its forecast for that country to 1.56-million units from 1.70-million.
Nissan now expects its US sales to fall 8.6% on the year to 1.46-million units from 1.55-million last year.
Nissan and its domestic rivals, including Toyota, have struggled with sluggish sales and falling profit in North America. Margins have been squeezed as they resorted to steep discounts to drive up demand in a competitive US market where sales plateaued near record highs.
While it has been able to repair some of its profit in North America as inventory reduction of older models enabled it to dial back on heavy US discounting, falling demand will test Nissan’s ability to be disciplined with its incentives.
Ghosn salary provision
The bleak outlook comes as Nissan also grapples with the Ghosn scandal and the resulting scrutiny of its corporate governance.
Nissan said it had recognised about ¥9bn ($84 million) in additional expenses linked to payments to Ghosn. This announcement came after it was indicted alongside Ghosn with failing to disclose the compensation.
While a Japanese court could order Nissan to pay Ghosn that amount, Saikawa said it was “unlikely” the expense would be realised.
This provision refers roughly to the amount Ghosn has been charged with underreporting of his 2010-2018 salary at Nissan. Ghosn denies all charges.